Digital Assets Act

TWENTIETH CONGRESS OF THE ) REPUBLIC OF THE PHILIPPINES 25 JUL 10 P6:15 First Regular Session SENATE S.B. No. 433 Introduced by SENATOR IMEE R. MARCOS RECOGNIZING DIGITAL ASSETS, REQUIRING THE REGISTRATION OF DIGITAL ASSET ENTERPRISES, THEIR OPERATORS, AND FOR OTHER PURPOSES EXPLANATORY NOTE Article II, Section 20 of the 1987 Constitution provides that "the State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments." Digital assets (previously referred to as "digital currencies") refer to assets represented in a digital form with their value being determined by supply and demand and has monetary characteristics. Virtual assets is a subset of digital assets issued by developers and stored in electronic wallets for online transactions. They are usually controlled by a decentralized network of users and is not subject to the control and guarantee of national governments or a central bank. The value of virtual assets is solely based on the demand and supply, which makes their value volatile. As such, they differ from fiat currency, which is fully backed by the government of a country and is acceptable as a payment for public and private transactions. They are also distinct from electronic money, which is just the digital representation of flat currency and is recognized as legal tender. Most virtual assets are programmed to behave like cash, with sophisticated encryption methods resulting in anonymity, as the user only needs to have a private digital key in order to transact in the system. Virtual assets suffer from several problems. The combination of lack of central authority, lack of legislation and the degree of anonymity associated with virtual asset transactions make them a potential vehicle for fraud and illicit transactions. Thus, there is a growing sentiment around the world for virtual assets to be recognized and regulated to facilitate its acceptability and use while minimizing its associated dangers and risks.

In the country, the Securities and Exchange Commission (SEC) regulates virtual asset offerings as securities through Republic Act (RA) No. 8799 or the Securities Regulation Code and SEC Memorandum Circular No. 9 s. 2024, while the Bangko Sentral ng Pilipinas (BSP) regulates transactions related to digital assets through BSP Circular No. 942, 944 and 1108. The BSP Charter, however, as defined by RA No. 7653, also known as the "The New Central Bank Act" ', as amended, does not mention electronic, virtual, or digital representations of money. This distinction is important in the context of the recommendation made by the Financial Action Task Force (FATF) last October 2021 on the use of the term "virtual asset" to refer to digital representations of value that can be digitally traded or transferred and can be used for payment or investment purposes, including digital representations of value that function as a medium of exchange, a unit of account, and/or a store of value. The FATF further emphasizes the distinction between virtual assets and fiat currency. While the FATF recognize that virtual assets do not include digital representations of fiat currency, the limitation in the mandate of the BSP creates a need to further define the regulatory authority of the BSP to Include e-money. The recognition and standardization of the rules regarding the operation of digital assets will allow the country to enjoy its advantages. One advantage is the ease in which transactions can be done. Digital assets are traded in the internet, which minimizes transaction costs. The accessibility, ease, and low transaction cost makes it an attractive vehicle for remittances, both local and international. The same traits also make it easier to make online transactions in the electronic commerce industry. Digital assets are also a possible alternative in addressing the lack of financial inclusion. According to the 2021 Financial Inclusion Survey, 44% of Filipinos do not own a formal account. The absence of access to financial institutions results in most Filipinos not having a credit history, preventing most Filipinos from availing a bank loan. The use of digital assets can allow Filipinos to accumulate a transaction history, which will improve the financial inclusion of the country. In addition, it also improves the geographic reach of the financial system among those living in far-flung areas. Given the situation described above, the bill aims to clarify and institutionalize the rules regarding digital assets. The bill aims to recognize but not regulate digital assets by defining what digital assets are and standardizing the process for the licensing and operation of e-money, virtual asset exchanges, and virtual asset businesses. The immediate passage of this legislation is earnestly sought. Free h. Marca IMEE R. MARCOS

Wrote third TWENTIETH CONGRESS OF THE D REPUBLIC OF THE PHILIPPINES ) First Regular Session 25 JUL 10 P6:15 SENATE S.B. No. - Introduced by SENATOR IMEE R. MARCOS AN ACT RECOGNIZING DIGITAL ASSETS, REQUIRING THE REGISTRATION OF DIGITAL ASSET ENTERPRISES, THEIR OPERATORS, AND FOR OTHER PURPOSES Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Short Title. - This Act shall be known as the "Digital Assets Act".

SEC. 2. Definition of Terms. - The following shall be defined in this Act as:

(a) "BSP" shall refer to the "Bangko Sentral ng Pilipinas; (b) "Digital assets" shall refer to e-money and virtual assets; (c) "E-money" shall refer to digital representations of fiat currency whose issue is backed by an equivalent fiat currency. It is an electronic store of monetary value on a technical device that may be widely used for making payments to entities other than the e-money issuer. The device acts as a prepaid bearer instrument which does not necessarily involve bank accounts in transactions; (d) "E-money issuer" shall refer to any entity which provides money transfer or remittance services using e-money; (e) "SEC" shall refer to the Securities and Exchange Commission; (f) "Virtual asset" shall refer to virtual currency and virtual token; (g) "Virtual asset business" shall refer to any of the following businesses:

(0) virtual asset exchange, (ii) virtual asset broker, (ili) virtual asset dealer, and (iv) other businesses related to virtual assets; (h) "Virtual asset exchange" shall refer to a center or a network established for the purposes of trading or exchanging of virtual assets, which operates by matching orders or arranging for the counterparty or providing the system or facilitating a person who wishes to trade or exchange virtual assets to be able to enter into an agreement or match the order, in the normal course of business; (i) "Virtual asset broker" shall refer to a person who provides services or holds itself out to the public as available to provide services as a broker or an agent for any person with respect to the trading or exchange of virtual assets in the normal course of business, in consideration of a fee or other remuneration; (j) "Virtual asset dealer" shall refer to a person who provides services or holds itself out to the public as available to provide services with respect to the trading or exchange of virtual assets for its own account in the normal course of business outside 17 the virtual asset exchange; (k) "Virtual currency" shall refer to an electronic data unit created on an electronic system or network for the purpose of being used as a medium of exchange 20 for the acquisition of goods, services or any other rights, or the exchange between virtual assets, and shall include any other electronic data units; (l) "Virtual token" shall refer to an electronic data unit created on an electronic system or network for the purpose of: (i) specifying the right of a person to participate in an investment in any project or business; (ii) specifying the right of a person to acquire specific goods, specific service, or any specific other right under an agreement between the issuer and the holder, and shall include any other electronic data units of right; and

(m) "Virtual token portal service provider" shall refer to a provider of an electronic system for an offering of newly issued virtual tokens who is responsible for screening the characteristics of virtual tokens to be offered, qualifications of the issuer and the completeness and accuracy of registration statement and draft prospectus for the offering of virtual tokens or any other information to be disclosed through such provider.

SEC. 3. BSP as Lead Agency for E-Money. - The BSP shall be the lead agency

on all matters pertaining the operation of e-money, including the power to issue notifications and other the performance of other duties in accordance with this Act.

SEC. 4, SEC as Lead Agency for Virtual Assets, - The SEC shall be the lead

agency on all matters pertaining to the offering and issuance of virtual assets, and the operation of virtual asset businesses. in charge of the exercise of powers under this Act over the offering and issuance of virtual assets, and the operation of virtual asset businesses, including the power to issue notifications and other the performance of other duties in accordance with this Act.

SEC. 5. Scope. - Securities pursuant to the law governing securities and

exchange shall not be regarded as virtual currency or virtual token under this Act. Virtual asset business operators and virtual token portal service providers under this Act shall be regarded as financial institutions under RA No. 9160, also known as the "Anti-Money Laundering Act".

SEC. 6. Transfer of Virtual Assets. - In case where delivery, transfer, holding or

return of cryptocurrencies or virtual tokens is required, virtual currencies or virtual tokens of the same category and type and of equal amount shall be fungible.

SEC. 7. Operation of E-money Issuers. - The BSP shall have the duty and power

to establish policies relating to the promotion and development, as well as supervision and monitoring of E-money and E-money issuers as prescribed under this Act. Such powers and duties shall include: (a) the issuance of rules, regulations, notifications, orders or directives on the operation of E-money issuers; (b) the determination of fees for an application of licenses or permits, granting of a licenses or permits, application for a permission, granting of a permission, filing of registration statements for offering of virtual tokens, filing of annual registration

statements, other applications or undertaking of businesses under a license or permission; (c) the prescription of criteria as a guideline for the consideration to address any potential issues which may arise from the enforcement of this Act; (d) any other activities to be implemented, in accordance with this Act.

SEC. 8. Offering and Issuance of Virtual Assets. - For the purpose of supervision

and monitoring of the issuance and offering of virtual tokens and the undertaking of 9 virtual asset businesses, the SEC shall have the duty and power to establish the policies relating to the promotion and development as well as supervision and monitoring of virtual assets and virtual asset business operators as prescribed under this Act. Such powers and duties shall include: (a) the issuance of rules, regulations, notifications, orders or directives on issuance and offering of virtual tokens and virtual asset businesses; (b) the determination of fees for an application of a license or permit, granting of a license or permit, application for a permission, granting of a permission, filing of registration statements for offering of virtual tokens, filing of annual registration statements, other applications or undertaking of businesses under a license, license or permission; (c) the prescription of criteria as a guideline for the consideration to address any potential issues which may arise from the enforcement of this Act; (d) any other activities to be implemented, in accordance with this Act.

SEC. 9. Disclosure of Information. - To protect public interest or investors, the

SEC shall have the duty to disclose the information relating to any violation and penalty imposed on such person who commits an offence under this Act, including any other information obtained in the performance of duties under this Act.

SEC. 10. License to Operate E-money Issuers. - Only the BSP shall issue a license

to operate E-money Issuers. Any natural or juridical person may obtain a license to operate E-money Issuers by filing an Application for Registration and Notarized Deeds of Undertaking to the BSP. The BSP shall issue the corresponding license upon fulfillment of the registration requirements. The E-money issuer shall commence operations within three (3) months from the date of issuance of the license. The E- money Issuer should register with the Anti-Money Laundering Council Secretariat 36 (AMLCS) within thirty (30) calendar days from the actual commencement of business 37 operations.

SEC. 11. License to Offer Virtual Tokens. - Only the SEC shall issue a license to

offer newly issued virtual tokens to the public. Any natural or juridical person may obtain a license to offer virtual tokens by filing a registration statement and a draft prospectus to the SEC. The offeror of virtual tokens shall prepare and submit the following information to the SEC: (a) reports concerning the results of business operation and the financial conditions; (b) any information which may affect the rights and interests of virtual token holders or the decision-making on investment or the change in the price or value of virtual token. The SEC shall have the power to specify in a notification the categories of virtual tokens or the characteristics of the offering of virtual tokens which shall be exempt from the requirement to submit a filing of the registration statement for an offering of virtual tokens and the draft prospectus under this Section.

SEC. 12. License to Operate Virtual Asset Business. - Only the SEC shall issue a

license to operate a virtual business. The application for the license and the issuance of the license shall be in accordance with the rules, procedures and conditions as specified by the SEC and is subject to payment of the application and license fees. In operating virtual asset business, a business operator shall comply with the rules, procedures and conditions as specified by the SEC, taking into account the following matters: (a) sufficient financial resources for the conduct of and risks associated with its operations; (b) safety of its clients' assets; (c) security measures against electronic crime, which are capable of protecting the computer system and computer data as well as the management of risks associated with crime or other causes; (d) appropriate accounting systems for the business and auditing by the auditor approved by the SEC; (e) know-your-client measures, client due diligence process and measures against financial assistance to terrorists or money laundering. Where it is necessary to maintain the economic and financial stability of the country, or to protect the public interest, the SEC shall have the power to specify conditions with which the licensed business operator shall be required to comply in operating the virtual asset business. Any virtual asset business operator who has operated a virtual asset business prior to the date on which this Act come into force and whose business requires a license under this Act shall submit an application for the license as prescribed in this Act within ninety (90) days from the date on which this Act comes into force if it intends to continue to operate the business. Upon submission of the application for the license, such operator may continue to operate such business until the application is rejected.

SEC. 13. Cessation of Virtual Asset Business. - Any virtual asset business

operator who wishes to cease operating a virtual asset business for which it has been granted a license shall apply for an approval to cease its business operations from the SEC. In granting the approval, the SEC may specify any conditions. If any virtual asset business operator has ceased its business operations, it shall complete the purchase, sale or exchange of virtual assets, settlement and delivery of any outstanding transaction. If it appears that a virtual asset business operator does not operate the virtual asset business for which it has been granted a license within the period specified 9 by the SEC or suspends its operations for a period of time which is longer than those specified by the SEC, the SEC shall have the power to revoke the license of such operator.

SEC. 14. Regulation of Virtual Asset Business. - If it appears that the financial

condition or operations of a virtual asset business operator is in such condition which may cause damage to the public, or a virtual asset business operator violates or fails to comply with the prescribed rules, procedures and conditions, the SEC may order the virtual asset business operator to rectify it within the specified period of time. If the virtual asset business operator fails to comply, the SEC may order the virtual asset business operator to temporarily suspend its operations either in whole or in part within the specified period of time for the rectification. In this regard, the SEC may also specify any condition to be complied with by the virtual asset business operator for the purpose of rectifying the financial conditions or operations of such virtual asset business operator. If the virtual asset business operator fails to comply, or in the case of repeated non-compliance, the SEC may consider revoking its license. In this regard the SEC, may order the virtual asset business operator whose license is revoked to take any action to protect the interest of its clients.

SEC. 15. Revocation of License to Operate Virtual Asset Business. - Where there

is evidence that the financial condition or operations of any virtual asset business operator is in such condition which may cause serious damage to the public and such business operator is unable to rectify its financial condition or operations, the SEC shall have the power to revoke its license. In this regard, the SEC may order the virtual asset business operator whose license is revoked to take any action to protect the interest of its clients.

SEC. 16. Protection of Virtual Asset Clients. - No virtual token business operator

in the category of virtual asset broker, including its staff members or employees who are aware or in possession of information related to any order for purchase or sale of

any virtual assets or derivatives related to such virtual assets of any client of such business operator, shall take any of the following actions, either for their own benefit or for the benefit of any other persons, in any manner that is likely to cause a disadvantage to the client: (a) placing, modifying, or cancelling an order for purchase or sale of virtual assets or derivatives related to such virtual assets by taking advantage of doing so before the order of such client is completely executed; (b) disclosing information related to the order of such client to any other person where they know or ought to know that such other person would rely on such information in placing, modifying or cancelling any order for purchase or sale of virtual assets or derivatives related to such virtual assets before the order of such client is completely executed.

SEC. 17. Penalty Clause. - Any virtual token offeror who falls to comply with

Section 10 and/or 11, or contravenes or fails to comply with the rules, procedures and

conditions issued in accordance with Section 10 and/or 11, shall be liable to imprisonment for a term not exceeding two years or a fine not exceeding five hundred thousand pesos (Php 500,000.00) and a further daily fine not exceeding three thousand pesos (Php 3,000.00) for every day during which the contravention continues. Any person who makes a false statement or conceals any fact which should have been disclosed in the registration statement for an offering of virtual tokens and draft prospectus pursuant to Section 10 and/or 11, shall be liable to imprisonment for a term not exceeding five years and a fine not less than five hundred thousand pesos (Php 500,000.00). Any virtual token offeror who contravenes or falls to comply with Section 12 and

Section 14 shall be liable to a fine not exceeding three hundred thousand pesos (Php

300,000.00) and a further daily fine not exceeding ten thousand pesos (Php 10,000,00) for every day during which the contravention continues.

SEC. 18. Implementing Rules and Regulations. - The SEC and the BSP shall,

within sixty (60) days after the effectivity of this Act, formulate the necessary rules and regulations for its effective implementation.

SEC. 19. Separability Clause. - Should any provision of this Act be declared

invalid or unconstitutional, the validity of the other provisions shall not be affected thereby.

SEC. 20. Repealing Clause. - All laws, orders, issuances, rules and regulations

or parts thereof inconsistent with the provisions of the Act are hereby repealed, amended or modified accordingly.

SEC. 21. Effectivity. - This Act shall take effect fifteen (15) days after its

publication in the Official Gazette or in a newspaper of general circulation. Approved,